This may turn out to be the gloomiest Christmas holiday season since the Philippines was gripped by political turmoil after the ouster of Joseph Estrada in 2001.

Amid a global economic crisis, businessmen in the country are expecting the worst fourth quarter in seven years, according to the latest quarterly business confidence survey of the central bank, Bangko Sentral ng Pilipinas (BSP).

For the fourth quarter, the confidence index is at -6.8 percent, defying the usually buoyant Christmas season. However, it improved from -12.9 percent in the third quarter, at the height of the Wall Street shakeout that saw the collapse of investment banking giant Lehman Brothers, the fire-sale of Merrill Lynch and the near-bankruptcy of insurance giant AIG.

“It’s slightly higher compared to last quarter although the index remained negative,” BSP Director Iluminada Sicat said at a news briefing Thursday.

The improvement this fourth quarter was due to the softening of oil prices, expectations of higher demand during the Christmas season and increased foreign exchange inflows from overseas Filipinos during the holiday season, Sicat said.

The confidence index refers to the percentage share of firms in the survey that expressed an upbeat view minus those that have a negative view.

A negative confidence index indicates that enterprises which are bearish outnumber those which are bullish for a given period.

“The respondents attributed the negative sentiment to expectations of economic slowdown as a result of the global crisis, the impact on domestic economy, expectations of lower exports particularly from the US, decline in consumer demand for certain commodities particularly milk because of the melamine scare (on milk products imported from China), peso depreciation and some political noise,” Sicat said.

If not for the seasonality factor for the fourth quarter, Sicat said the global downturn would have resulted in a more bearish sentiment.

Pessimists also outnumbered optimists on the outlook for first quarter of 2009, as the index sank to -0.5 percent from 16.6 percent in the previous survey.

The BSP business expectations survey was done from Oct. 1 to Nov. 5 among 1,242 companies drawn from the Securities and Exchange Commission’s listing of the top 7,000 corporations in sales. It was the first time since 2001 that the BSP survey showed a negative business confidence index in the fourth quarter.

“The bearish outlook on the macroeconomy mirrored the weak global sentiment due to the global economic slowdown and the financial turmoil,” said BSP Governor Amando Tetangco Jr.

Despite the gloomy outlook, the survey suggested that more firms would expand operations. Unfortunately, they are keen on expanding without hiring new workers, Sicat said.

“The expansion will likely be in the form of capital investments, such as in buying new machines that will cut operational costs make their operations efficient,” she said.

The employment outlook index dropped to -1.4 percent from 8.3 percent in the previous quarter, weighed down by pessimism among manufacturing firms.

Pessimists outnumbered optimists across all sectors this quarter, with the exception of construction which posted an index of 6.6 percent.

The services sector registered an index of -6.3 percent. Only the hotels and restaurants sub-sectors continued to post a positive index of 40.2 percent, largely due to expectations of brisker business during the holidays, Sicat said.

The industry as well as wholesale and retail trade sectors registered indices of -5.8 percent and -9.8 percent, respectively. Respondents from these sectors cited the weaker peso and lower consumer demand as the reasons behind their bearish outlook for the macroeconomy.

Looking ahead in the first quarter of 2009, the construction and services sectors turned more upbeat.

However, the fourth quarter outlook in all other sectors was lower compared with levels recorded last year and a year ago.

The BSP survey also found that businessmen were apprehensive that banks may be more risk averse in the coming months and therefore tighten lending activities. The credit access index deteriorated to -7.4 percent from the previous quarter’s -1.6 percent.

The financial condition index—an indicator of internal liquidity—also dropped slightly to -29.9 percent this fourth quarter from -29.1 percent in the third.

Most of the respondents also expected the peso to weaken in the fourth quarter as well as in the first quarter next year. They also expected the inflation and interest rates to go up.

They identified competition, weak demand (leading to low sales volume) and high interest rates as the major risks to business prospects this quarter.